The FSA has temporarily closed the entire sale and rentback market after its review of the sector found most transactions were either unaffordable or unsuitable and should never have been sold.
Last March, the FSA launched a review of the sales practices of all regulated sale and rentback firms.
Its report, published last week, shows there widespread failings across the sector, including a failure to properly assess appropriateness and affordability, disclose details of the arrangements and implement adequate training and competence, compliance monitoring and recordkeeping processes. The FSA has referred one firm to its enforcement division while the others have either stopped taking on new business or cancelled their permissions.
Of the 22 firms reviewed, only nine had been active since the FSA starting regulating the sector in 2009. Of this nine, five have stopped doing SRB business, three have kept their regulatory permissions but decided not to use them for the foreseeable future and one will only buy secondhand SRB contracts from other firms. Five of the firms have agreed to undertake past business reviews, which may result in consumer redress. The FSA says it will focus on working with these firms to ensure customers are treated fairly.
FSA head of mortgage and general insurance supervision Nausicaa Delfas says: “Rentback is often the last resort for struggling homeowners so we expected to see firms treating their customers much better than this report suggests.
“The resulting temporary closure of this market could have been avoided but it seems most were more focused on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud.”
Chadney Bulgin mortgage partner Jonathan Clarke says: “A lot of people entered into these agreements out of desperation because it was the next best thing to being repossessed, even though they did not really understand what they were getting into. I do not think anyone will mourn the sector’s passing.”
Most common SRB failings identified by the FSA
- Sale and rentback firms did not correctly assess appropriateness and affordability and customers were not given enough time to consider the agreement
- Disclosure of the key facts of an SRB agreement did not follow the correct order, was insufficient and not given at the right time
- Agreements contained incorrect information and did not meet the regulator’s requirements for tenancy agreements
- Sales processes were inadequate and did not allow firms to gather enough information to assess appropriateness
- Financial promotions breached FSA rules
- Training and competence, compliance monitoring and record-keeping were all inadequate